Rivian Layoff 10% Staff and Lowers Production Forecast for 2024

[RivianRunner]

Bloomberg just reported that Apple has cancelled their EV projec.

Let the "Apple buys Rivian" hot takes get even hotter lol.

Apple has been rumored to be building an Apple EV for over a decade. I've been saying they would never bring an Apple EV to market for just as long.

It looks like I was right. People think it's easy to mass produce autos. They don't have a clue what they are talking about.

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[Eric9610]

The 2015 article is reporting on one of the few quarters in which Tesla had a negative gross margin on every car sold. Quarterly results vary, but when Tesla's historic results are looked at on an annual basis, the gross automotive margins were always positive. The comparison here is that Rivian's gross margins have never even been close to break even.

It's a notable article though as it points out Tesla's 5-year guidance for 500,000 EVs in 2020, a target they managed to barely hit, even as COVID hit near the beginning of the year. Whoever said Tesla has lofty goals they never manage to hit? Plenty of naysayers said that 500K by 2020 was absurd, impossible, not practical, dreaming, not gonna happen.

Tesla does set "stretch gools" when they don't see any major impediments. What's surprising is how often they are able to meet or exceed such goals.

Capitalism requires that businesses not only bring high quality products to market, but that they do so at a cost that makes them compelling. One without the other doesn't cut it in capitalism. This is how the end user gets good value.

Are you sure they make money on each car… last i checked they are profitable only because they sell carbon credits from producing EVS. I could be wrong. I don’t know if they split that out on earnings or they combine in gross margin per car…

 

[GhostAndSkater]

Are you sure they make money on each car… last i checked they are profitable only because they sell carbon credits from producing EVS. I could be wrong. I don’t know if they split that out on earnings or they combine in gross margin per car…

Ignoring a one time tax benefit, on Q4 2023 they earned 0.4B due to credits and had 2.1B of operating profits

So yes, they are vastly profitable even without credits

If we talk about only automotive gross margins, they had a 18.2% gross margin with credits and 17.2% without them on Q4 2023

 

[Eric9610]

So when stelantis and others as they stated, stop buying them should we be concerned tesla lost $1.6b in annual revenue? Credits almost account for 1/3 of total earnings…

 

[RivianRunner]

The article also points out GAAP vs non-GAAP, and that on a GAAP basis they were more negative per car, both for that quarter and for more quarters. I haven't dug enough to compare directly to how Rivian is reporting. Curious if you have.

Both Rivian and Tesla report GAAP and non-GAAP results. Wall Street always uses non-GAAP earnings because they tend to better reflect what is actually changing from quarter to quarter.

But that misses the point entirely. The main point is whether the cars are being built at positive gross margins, ie, does each additional sale put the company further in debt even if production were ramped to high volumes? Because that raises the question: Is the product viable? Without a viable product, you have no business. All of Tesla's products have been viable because they all had positive gross margins. None of Rivian's products have been viable because they all had negative gross margins. They are not even close to positive gross profit margins. If they ever hit positive gross margins, they will still be bleeding money like crazy. Because positive gross margins do not imply profitability. That would only get them to where Tesla was from the beginning of the sale of every car they have ever made.

Unrelated to this specific post I'm quoting, your previous points have implied you were investing on some basis of 'stock fundamentals' (apologies if I've misunderstood). Do you agree that TSLA is (or at least was) massively overvalued on actual business fundamentals?

Personally I liken TSLA's (in my view excessive) valuation as more of a popularity contest of positive reinforcement.

I would hope Tesla's valuation is not a reflection of a popularity contest. That would imply that investors, in the aggregate, are idiots. Valuation of a company growing this fast and with so many irons in the fire, does not follow any known formula. I can value a contract that pays me X dollars every month for X number of years. I still have to guess a little on what interest rates will do, etc. but I can come up with its approximate value today and that value would likely be very close to what 10 other financial analysts calculated.

Stocks in real growth companies do not work that way because, depending upon the assumptions an analyst makes about growth rates, profit margins, new business divisions coming on-line and adding to those earnings etc., the "valuation" of a company could vary by 1000 fold or more. Instead, the markets value a company. That is every investor buying and selling values how much they think it's worth to them (by constantly deciding whether to buy, sell or hold). Certainly, if an investors timeframe is only one year, TSLA was over-valued at more than a trillion dollars. But, if TSLA is valued by the market at $3 trillion dollars by 2033, that one trillion dollar valuation will look cheap in hindsight. And that is still a distinct possibility. In fact, I think it's likely.

But you have to value a company on things we can't know. Let's say you decide not to buy TSLA at $200 now, because you think it's over-valued. And let's say it drops to $120/share this year and, given the negativity, you still think it's over-valued and you don't buy. Then let's say it rises back to over $200 and continues to appreciate over the years to $1000/share because they solved autonomous driving, Optimus humanoid robots are in high demand and battery production is growing 35%/year and electric utilities cannot get enough of them. Chances are you still think it's over-valued at $1000/share.

Check out the price of MSFT going back to the 1990's. Common word on the street was the Microsoft was a great company with a bright future but that it was over-valued. However, those who ignored the noise and bought a chunk of that great company, those who paid the "overvalued" price in 1991, for every $10K they invested, those shares are now worth $2.9 million. And that's not counting the millions of dollars in dividends it would have paid out eventually. I've owned companies in which each year's dividend was more than the amount of my original investment. It's the gift that keeps on giving. And I'm not even a dividend investor, those companies paid zero dividend when I bought them.

So, was Microsoft really "over-valued" in the 1990's, like most of the analysts were saying, or did those analysts simply not know what they were talking about? Examples like this are abundant, AMZN, SBUX, APPL, QCOM, TSLA, etc. It's a very long list. I missed Amazon, and I never liked Apple, but I don't have to identify every winner to do unbelievably well, I only need a few that continue to perform over time. The secret is avoiding the losers (which is why I never invested in TSLA until 2019 even though I would have done very well in hindsight).

Yes, I am a fundamental investor, but I don't look in the rear-view mirror, I look at where I think a company is likely to be in 5 or more years. If things change, and that causes me to reconsider my analysis, I might sell. It doesn't matter if I'm up or down, I'm constantly deciding whether my long-term vision still makes sense.

Investing is not something that most people are good at being logical about. It requires the ability to see the future better than the rest of the investment community and not getting caught up in the day-to-day noise. I don't waste my time trying to scalp 20% profits here, 40% there, I am a real buy and hold investor. I generally only sell if the story changes for the worse, and I don't base that on the share price going down, I base it upon what I think the future holds. Oh, I also sell some if I need or want the money, since I retired 25 years ago and my only income is derived from my investments.

Rivian may very well make something out of themselves, but I've been wondering since the IPO whether RJ has the business acumen necessary to lead them where they need to go. And what I've seen has made me lean increasingly towards "no". It's not about whether the product is any good, it's all about whether the product can be sold profitably. That's why I didn't buy into Tesla until 2019, even though I had been watching them like a hawk since before the IPO. Because in 2019 it became abundantly clear that the Model 3 would have huge demand at high profit margins which would cause the entire company to be net profitable. Keep in mind, it had positive gross margins on the Model 3 almost from the introduction (after the failed ramp in 2017 got sorted out).

Value investing, in the context of buying a low P/E stock, is for the birds. Winning in the stock market is a lot easier if you take a much longer-term view than other investors are doing. Here's a story that exemplifies that:

Fidelity brokerage firm decided to do a study on their best performing retail brokerage customers. They wanted to know why some customers greatly out-performed others. When they looked at the analysis, and tallied the results, they were surprised to learn that their customers with the highest returns, had either died many years ago, or forgot that they had a brokerage account! The best-performing accounts had not been actively traded for many years. Yes, it's true, the best investor is a dead investor!

Being alive (and aware that you have a brokerage account) leaves one open to selling their winners due to supposed "overvaluation". These are the stocks that statistics show have the highest returns over time. Stocks that outperform, tend to outperform more. Only sell your winners if the future outlook has changed or it was a winner for the wrong reasons.

 

[RivianRunner]

Are you sure they make money on each car… last i checked they are profitable only because they sell carbon credits from producing EVS. I could be wrong. I don’t know if they split that out on earnings or they combine in gross margin per car…

Yes, every car Tesla makes is strongly profitable (from both a gross and a net perspective) without any credit sales. But it's false to discount the value of credit sales because it's real income and all manufacturers play by the same rules.

Only people who listen to TSLAQ types who like to confuse and spread FUD think that Tesla would be unprofitable without credit sales. All you have to do is look at their financials. They are a public company and are required to disclose complete financials every quarter and each year.

 

[RivianRunner]

So when stelantis and others as they stated, stop buying them should we be concerned tesla lost $1.6b in annual revenue? Credits almost account for 1/3 of total earnings…

Tesla's income from credit sales should actually increase over the next couple of years since the other big players in the U.S. auto market have announced plans to delay ramping of EV battery and vehicle production. Eventually, credit sales will dwindle, until then it just adds more profit to the bottom line. Tesla's earnings will continue to increase, even as credit sales eventually decline.

Tesla has put themselves in a very strong position with their relentless focus on driving down the cost of designing, manufacturing and delivering vehicles.

If gas prices stay low, Tesla wins as their competition sells more of their most profitable vehicles, pickup trucks and gas-guzzling SUVs, and need to buy more emission credits from Tesla.

If gas prices rise, people flock to EVs. Tesla wins either way, thanks to sales of emission credits. But in no scenario are those credits required for Tesla to sell EVs profitably.

 

[Eric9610]

All i am saying is 1/3 of income is pure profit since its a byproduct of making EVs, what happens when that is gone as many others have committed to stop purchasing them.

 

[Golfer04]

Are you sure they make money on each car… last i checked they are profitable only because they sell carbon credits from producing EVS. I could be wrong. I don’t know if they split that out on earnings or they combine in gross margin per car…

Tesla became profitable above carbon for the first time in either 2021 or 2022 (I forgot), but it is recent. Now they have the highest gross margin per vehicle in the industry NOT including carbon credits. I can't stand Elon, but that company has been impressive. Especially if you consider all the personnel they lose to competitors all the time.

 

[RivianRunner]

All i am saying is 1/3 of income is pure profit since its a byproduct of making EVs, what happens when that is gone as many others have committed to stop purchasing them.

Other automakers can talk a big talk about committing to stop buying emissions credits, but in order to do that they have to make and sell EVs in volume. And if they lose more on each EV than the credits for that car cost on the open credit market, well, that's a net negative. When legacy auto announces they are delaying their plans to build EVs in large numbers, well, that's the same thing as saying they will still be in business of buying emissions credits. Because the fines for not meeting fleet emissions requirements are more than the cost of the credits.

They would like to stop buying the credits, but unless they have a low emission fleet, they really have no choice, the fines cost more.

 

[White Shadow]

If Rivian became net profitable in 3 years (2027), that would be 18 years that it took them (from 2009), a year longer than Tesla.

First, Rivian will not be net profitable in 3 years. Secondly, no, that's not correct. If you want to tell me that Rivian has been around since 2009, that's fine. Their first consumer vehicle wasn't made until the end of 2021. So the comparison you're trying to make with Tesla is about as apples and oranges as it gets.

 

[RivianRunner]

First, Rivian will not be net profitable in 3 years. Secondly, no, that's not correct. If you want to tell me that Rivian has been around since 2009, that's fine. Their first consumer vehicle wasn't made until the end of 2021. So the comparison you're trying to make with Tesla is about as apples and oranges as it gets.

Nope, it's a direct comparison from the year both companies were founded (2003 for Tesla and 2009 for Rivian). Tesla took 9 years to get to their first delivery (of a car they made from scratch) and Rivian took 12 years to get to their first delivery.

And I never said Rivian would be net profitable in 3 years (or that they should be). But they shouldn't have started making their first vehicle without planning on have positive gross margins from the beginning.

 

[White Shadow]

...We are quickly getting to the point where it would be economically foolish to buy a new gas car unless you are a busy travelling salesman who is constantly driving the Interstate, thousands of miles per week. The transition to EV's will happen naturally. The "news" that consumers are cooling on EVs is fake news attempting to extend the age of oil as long as possible. The proof is that ICE sales growth has been negative for years (once you average out the falling sales during covid and the subsequent recovery) while EV sales grew right through covid and continue to grow, even today. The media doesn't tell it to you in straight terms like that, but it's pretty obvious they are creating a false narrative when ICE sales continue to decline and EV sales continue to grow. Overall car sales (ICE and EV combined) are falling because people can't afford new cars. EV's are about to fix that.

I agreed with the first part of your comment, but not with the above quoted paragraph. It's not economically foolish to buy a new gas car at all. More than 90% of people (Americans) are doing exactly that and for good reason. I would argue that buying a new EV today is more foolish than buying a new ICE vehicle. Why? Simple--it's an emerging technology and the EV you buy today is going to be old news in a few short years. 800V architecture, transition to NACS, better batteries, longer ranges, faster charging, etc....these are all things expected to happen and we already know some of those things are happening already. So your shiny new EV isn't going to be all that desirable and therefore less valuable, which means one thing--high depreciation. Yes, all cars depreciate, but if EVs get better rapidly, it's going to mean a big hit in value quickly.

I'm not sure why you think ICE sales are so poor. From what I've seen, sales were up by double digits in 2023 despite any increased demand due to Covid. And EV sales are just a drop in the bucket, but it's also only fair to mention that most EV sales are direct to consumer, which is completely opposite of the dealership model of ICE vehicles and therefore understandable during the pandemic.

I understand that most people here are fans of EVs in general and not just Rivian. But I also think that fact prevents people from truly seeing what's going on out in the world. There's no doubt that EVs have a certain popularity and are growing, but the rate is in fact pretty slow. Yes, the government continues to incentivize EVs because the demand isn't truly there. Think about that.....it's not just at the federal level, but also many states. Here in NJ, nobody pays sales tax on an EV, new or used. That's a huge incentive, yet only about 8% of new vehicles sold in NJ are EVs.

I really don't believe the media is creating a false narrative on EVs. The information is out there for anyone to find.

 

[White Shadow]

Nope, it's a direct comparison from the year both companies were founded (2003 for Tesla and 2009 for Rivian). Tesla took 9 years to get to their first delivery (of a car they made from scratch) and Rivian took 12 years to get to their first delivery.

And I never said Rivian would be net profitable in 3 years (or that they should be). But they shouldn't have started making their first vehicle without planning on have positive gross margins from the beginning.

The Roadster was being sold in 2008. That's a fact that can't be ignored. So five years after the company was founded, they sold their first car. Rivian, on the other hand, it's more than twice that amount of time.

As far as positive gross margins, what did you expect? That only comes with scale. No start-up car manufacturer will be able to scale from the beginning. Rivian just needs to stay afloat long enough to reach that point.

 

[Mark_AZR1T]

Same thing Tesla went through?

Many people don't know this, but Tesla was largely profitable from the start, it was the cost of building out the Supercharger and service networks, and corporate overhead, that put them in the red every year. But Elon, going back to the early Roadster days, always felt it was necessary to sell each car at a small profit, even if the rest of the company put it in the red. That's because you don't want to find yourself in the position of cutting production to save money. You want each additional car to be additive to your financial position.

Tesla wasn't Gross Profitable as a company until 2019. They have been Gross Margin Positive (related concepts, slightly separate meanings) on the auto sector since 2013.

Elon started a business that 0% of the smart-population gave him a chance to succeed (same with SpaceX). He not only proved everyone incorrect, he proved them dead-wrong and the icing on the cake, was his bravado forced every automobile manufactuerer in the world to get on board. From Ford to Ferarri and everyone else.....

A few years back, my thought was Rivian may not make it on it's own...and somewhere there is a post from a couple years ago here, where I thought Apple may be the best option....who knows...we're all keyboard warriors anyway, and no on here is running an EV start-up, as far as I'm aware....

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